NOTE: This Problem Requires Present Value Information Charter Curp

Essay

NOTE: This problem requires present value information.
Charter Corp.manufactures office equipment and supplies throughout the U.S.The company owns property,plant,and equipment and also enters into operating leases for certain facilities.The company's tax rate is 35%.Listed below is selected financial data for Charter and the company's operating lease disclosure.
$\begin{array}{lrrr} & \underline{\mathbf{2012}} & \underline{\mathbf{2 011}} & \underline{\mathbf{2 0 10}} \\\text { Property, Plant, \& Equipment (net) }& \$ 178,454& \$ 162,369 & \$ 155,388 \\\text { Total Assets } & 515,685 & 424,545 & 410,256\\\text { Common Shareholders' Equity } & 302,754 & 298,564 & 289,455 \\\end{array}$

$\begin{array}{lrr}\text { Sales } & \$ 986,258 & \$ 888,965 \\\text { Cost of Goods Sold } & 693,857 & 588,920 \\\text { Depreciation Expense } & & \\\text { Interest Expense } & 84,253 & 75,689 \\\text { Net Income } & 124.581 & 91.025\end{array}$
Charter Curp.
Operatine Larara Disclasura (anounts in thausands)
Operating Lease Camnitsents at the end of 2012
$\begin{array}{cc}{\text { Year }} & \text { Reported Lease Commitments } \\\hline 2013 & \$ 25,239 \\2014 & \$ 52,800 \\2015 & \$ 78,924 \\2016 & \$ 48,760 \\2017 & \$ 45,678 \\\text { Beyond } 2017 & \$ 212,000\end{array}$
As an analyst you wish to restate Charter's operating leases into capital leases.
Required:
a.Using the information in the operating lease disclosure,and assuming that Charter has an incremental borrowing rate for secured debt of 8%,restate the operating leases into capital leases.
b.Estimate the average life of the operating leases.
c.Calculate Charter's fixed asset turnover ratio as reported.
d.Would Charter's fixed asset turnover ratio increase or decrease,assuming that the operating leases were capitalized?